Pricing (Part 1)

 Lets assume you manufacture electronic components like i pods, and now you are planning to develop and market a new kind of i pod, you have worked on all the cost items and marketing expenses and all the other relevant things that you need to take into account.

But the only thing you did not yet consider is the 'Pricing'

What influences the price of my product?

You should be aware that in the modern world your pricing decision should not be solely based on the cost, there are many other factors that affects the pricing of a product, for instance

1. Price Sensitivity
2. Price perception
3. Quality (An important factor)
4. Competitors
   
5. Supplier
6. Inflation
7. Incomes
8. Price of other goods
9. Taste or Fashion
   

This is not an exhaustive list, there are many other factors as well which should be taken into account when determining the price of a product.

Should I consider the market which I will operate in?

Of course, studying the market in which you operate is an important factor as well. Basically there are four categories of market,

1. Perfect Competition
2. Monopoly
   
3. Monopolistic Competition
   
4. Oligopoly
   

Each market has a different characteristic and the price set in it should be according to the overlying conditions. (Keep in mind that perfect competition do not apply in real life scenario)

What else should I consider?

Elasticity of demand is an important factor to be considered as well. When setting the price, the price elasticity of the product should be measured and considered, not taking it into account can result in serious consequences, .e.g. if the price elasticity is very elastic and you increase the price a little bit, this can result in a drastic fall in your sales in turn reducing revenues and profits, (in a worst case scenario you might be pushed out of the market, scary isn't it?)

In the next pricing article, i will highlight a few pricing methods and plus how to set a profit maximizing price.